Market Volatility 2025: Why Strategic Bond Investment Can Protect Your Retirement | Dupree Financial

The Tom Dupree Show

Market Volatility and Strategic Bond Positioning: Why We’re Preparing for What’s Next

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Market Selloff Signals Valuation Concerns

This week brought a stark reminder that what goes up doesn’t always continue in a straight line. The major indices experienced significant selling pressure, with the NASDAQ leading the decline. While some investors may be surprised by this volatility, it’s exactly the kind of environment we’ve been preparing for at Dupree Financial Group.

In this episode of The Financial Hour, Tom Dupree and Mike Johnson discuss the recent market selloff, why elevated valuations have been a flashing warning sign, and, most importantly, why our strategic bond positioning is designed to protect and create opportunities for our clients.

The Week That Was: Tech Takes a Hit

The selloff began Tuesday with the NASDAQ down approximately 2%, while the S&P 500 fell 1.2%. Thursday brought another 1% decline in the S&P, and Friday continued the downward pressure with the S&P down about 1.1% and the NASDAQ falling another 1.5%.

While some media attention focused on Michael Burry announcing short positions, the real story is much simpler and more fundamental: valuations have been stretched for quite some time.

“We’ve been hollering it from the rooftop for a while now. The market eventually realizes that maybe these things aren’t gonna grow 20% in perpetuity forever.” – Tom Dupree

Classic Top-Sounding Talk

In recent meetings with companies building data centers and manufacturing components for AI infrastructure, the conversation has taken on a familiar tone. These are excellent companies with impressive technology, but the projections for future demand sound almost too good to be true.

“The amount of demand that they talk about having out into the future—classic top sounding stuff. It just sounds way too good to be true. And the valuations of these companies are as if this whole thing they’re talking about happening has already taken place.” – Tom Dupree

The challenge isn’t whether data centers are important or whether AI will continue to grow. The challenge is that current stock prices already reflect perfection, leaving little room for anything less than extraordinary outcomes.

Valuation Metrics Flash Warning Signals

Current market valuations tell a concerning story:

• S&P 500 weighted P/E ratio: 28 (elevated)
• NASDAQ weighted P/E ratio: 34+ (expensive)
• Shiller PE (CAPE ratio): 39.63

To put that last number in perspective, at the peak of the tech bubble, the CAPE ratio reached about 44-45. We’re now at valuation levels similar to where the market stood in 1999.

“The level we are now is about where the market was from a valuation standpoint in 1999.” – Mike Johnson

While valuations don’t provide precise timing for market corrections, they absolutely serve as warning signals that should influence how you position your portfolio—especially if you’re in or approaching retirement.

Historical Market Melt-Ups: A Sobering Comparison

Looking at past market melt-ups that preceded significant declines reveals striking similarities:

• 1920s (1920-1929): 489% rally
• Japan (1980-1990): 500% rally
• Tech Bubble: Nearly 800% rally
• Today (past 10 years): 512% rally

The pattern is clear and concerning. While this doesn’t guarantee an immediate crash, it does underscore why defensive positioning makes sense for retirement portfolios.

Why We’re Buying Bonds Now

For the past several months, Dupree Financial Group has been systematically taking profits from positions that performed well and reallocating into treasuries and money market funds. This isn’t market timing—it’s valuation-based tactical positioning.

Our strategic bond purchases serve three critical purposes:

1. Price Appreciation Potential

If economic conditions slow and interest rates decline, bond prices rise. This means the bonds we’re purchasing now could generate capital gains in addition to their yield.

2. Locking in Yields

Current treasury yields around 4% look increasingly attractive, especially if interest rates fall in the future. When short-term money market rates potentially drop to 2%, our clients will still be earning 4% from their bond holdings.

3. Creating Tactical Opportunities

Bonds provide liquidity that can be converted into stocks if valuations become truly attractive. Think of them as “dry powder” waiting for the next major buying opportunity.

“It’s a source of cash. You can sell those bonds if certain stocks that you like get cheap enough and could convert those treasury bonds into stocks that you might wanna buy if things get really cheap.” – Tom Dupree

The NASDAQ’s Lost Decade: A Cautionary Tale

From 2000 to 2013—a full 13 years—the NASDAQ’s total return was just 1%. Not 1% per year. One percent total.

“From 2000 to 2013, the total return for the NASDAQ was 1%, not 1% annualized. 1%.” – Mike Johnson

This sobering statistic illustrates why sequence of returns risk matters so much in retirement. If you experienced that period while withdrawing from your portfolio, the impact would have been devastating. Very few current investors have experienced such an extended period of poor returns, which makes complacency particularly dangerous.

The Flight to Quality Scenario

If markets experience significant selling pressure, we typically see a “flight to quality” where investors move from stocks to bonds. This dynamic causes bond yields to fall and prices to rise—exactly when having bond positions provides both stability and profit.

Additionally, the Federal Reserve’s actions matter. While the Fed doesn’t directly control long-term rates, their policies influence the entire yield curve. Recent indications suggest the Fed may stop the runoff of their balance sheet and potentially resume purchases (a form of quantitative easing), which would support bond prices.

Planning for Inevitable Volatility

The key insight for retirees is simple but crucial: down markets are only an opportunity if you’ve prepared for them.

“Down markets are only an opportunity if you’ve planned for it or if you’ve taken steps to actually be able to take advantage of a down market.” – Mike Johnson

If you’re fully invested in index funds with no bonds, no money market reserves, and no plan to rebalance, you can’t take advantage of discounted prices. You’re simply riding the volatility with no ability to act.

Our approach focuses on:

• Taking gains when valuations stretch rather than trying to time the market perfectly
• Owning companies that produce consistent cash flow and pay dividends
• Maintaining tactical reserves in bonds and cash equivalents
• Building portfolios that generate income regardless of market direction

Dividend Growth as Inflation Protection

Income-focused investing doesn’t mean sacrificing growth. Many dividend-paying companies in our portfolios have delivered strong price appreciation while also raising their dividends year after year.

This creates two paths for inflation protection:

1. Price appreciation that grows your principal
2. Rising dividend income from companies with decades-long track records of increases

The combination provides purchasing power protection without requiring you to sell shares at potentially disadvantageous times.

The Value of Flexibility and Patience

Market environments change, and successful investing requires adapting to those changes. What worked brilliantly from 2010 to 2021—simply buying index funds and holding—may not serve retirees well in the current environment.

Our research-driven approach, focus on valuation discipline, and tactical use of different asset classes (stocks, bonds, cash) are designed to navigate varying market conditions while keeping your retirement objectives as the North Star.

Key Takeaways

Market Context: Elevated valuations across major indices, with the Shiller PE at levels similar to 1999, suggest caution is warranted.

Strategic Positioning: We’ve been taking profits and building bond positions to create tactical opportunities and downside protection.

Bonds as Offensive Weapons: Today’s bond purchases can provide price appreciation if rates fall, locked-in 4% yields, and liquidity for future stock purchases.

Historical Perspective: The NASDAQ’s 1% total return from 2000-2013 reminds us that extended periods of poor performance do happen.

Retirement Focus: Our dividend-focused, value-conscious approach aims to generate consistent income with less volatility than pure index investing.

Moving Forward

Markets will always have periods of volatility. The question isn’t whether they’ll occur, but whether you’re positioned to weather them and potentially benefit from them.

At Dupree Financial Group, we believe that understanding what you own and why you own it—combined with tactical positioning based on valuations—provides the best path for retirement security.

If you’re wondering whether your portfolio is properly positioned for the current environment, we’re here to help.

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Ready to discuss your portfolio positioning?
Call us at [phone] or schedule a complimentary portfolio review at dupreefinancial.com

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About Dupree Financial Group

With 47 years of investment experience, Tom Dupree and the team at Dupree Financial Group focus on making your money work for you through research-driven, value-conscious investment management. We specialize in creating income-focused portfolios designed to last through retirement.

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Dupree Financial Group | Where We Make Your Money Work For You

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